Rare victory: Costa Mesa wins $10.3 million in redevelopment refund

May 24, 2014

Updated May 25, 2014 9:34 a.m.

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Costa Mesa's downtown area, which includes the Triangle entertainment center, right, was the focus of Costa Mesa's redevelopment agency until the anti-blight agency was disbanded two years ago. The state acknowledged this month that it improperly seized $10.3 million of Costa Mesa's redevelopment funds; the money is being returned. CHRISTINE COTTER, CONTRIBUTING PHOTOGRAPHER

Costa Mesa's downtown area, which includes the Triangle entertainment center, right, was the focus of Costa Mesa's redevelopment agency until the anti-blight agency was disbanded two years ago. The state acknowledged this month that it improperly seized $10.3 million of Costa Mesa's redevelopment funds; the money is being returned. CHRISTINE COTTER, CONTRIBUTING PHOTOGRAPHER

Money fights

Most cities haven't been able to keep their anti-blight funds after the redevelopment money was seized by the state two years ago:

Huntington Beach lost a legal battle last year over its right to keep $11 million of redevelopment money. City officials denied owing any money even as they agreed to hand it over to the state.

Irvine has been wrestling with state auditors over whether it owes $71 million in redevelopment funds. The state contends that Irvine improperly transferred assets from its redevelopment agency to the city in 2011, including 35 acres of Great Park land. The city says the transfer was legal.

Tustin has been accused by the state of failing to pay back $22 million that city officials borrowed from its now-defunct redevelopment agency. The city is fighting the state in court, contending the state illegally accelerated the repayment schedule.

COSTA MESA – State officials have agreed to repay the city $10.3 million in anti-blight funds that were improperly seized two years ago as California’s redevelopment agencies were disbanded.

The state Department of Finance’s decision to return the money to Costa Mesa marks a rare victory for cities that have long contended their coffers were looted when California shut down all 425 locally run redevelopment agencies amid a state budget crunch.

More than 100 lawsuits were filed against the state, including by Costa Mesa last year.

“This is the right decision the state made and the fair approach,” Costa Mesa city CEO Tom Hatch said Friday. “It is the city’s money, and we had good documentation to prove we followed the law.”

The state’s decision, which was handed down last week, followed nearly a yearlong legal battle over who was the rightful owner of more than $10 million of Costa Mesa’s redevelopment funds.

Costa Mesa set up its redevelopment agency about four decades ago to revitalize its downtown area.

The state, in seizing Costa Mesa’s redevelopment funds in 2012, contended that the assets belonged to the state.

In general, redevelopment agencies are funded with a slice of local tax dollars that would otherwise go directly to Sacramento.

But Costa Mesa officials argued in a July 2013 lawsuit that the city had loaned money to its redevelopment agency about 10 times over the past four decades – and that the agency had yet to fully repay the city, Hatch said.

When California’s redevelopment agencies were disbanded, the state was skeptical of loans made between cities and redevelopment agencies.

State officials contended that cities were illegally shifting around their redevelopment funding to protect the money from seizure. Some local officials even acknowledged the transfers were bogus.

Hatch said Costa Mesa city officials spent months meticulously combing through 40 years of records to prove its loans were legitimate.

In a May 16 letter, state officials told Costa Mesa that $10.3 million would be coming its way, and that the city would receive an initial $783,000 payment in early June.

Costa Mesa officials are still reviewing the agreement and have not dropped the lawsuit, Hatch said.

“We need to further clarify what we perceive as loose ends and inconsistencies with the state,” Hatch said.

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